Ensuring accurate and compliant payroll processing is crucial for every restaurant owner in Los Angeles. With unique wage laws, new federal tip income tax rules, and city regulations, setting up payroll efficiently saves money, safeguards your team, and secures your local business reputation. This guide covers everything LA restaurants need to know, featuring powerful payroll tools and real-world compliance strategies.

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Navigating Los Angeles Minimum Wage & Payroll Regulations

Los Angeles restaurant owners must adhere to some of the highest wage requirements in the country. As of 2025, the city’s minimum wage is $16.78 per hour. California does not allow tip credits—so tips are earned on top of the minimum wage.

• Full-time Employees: Anyone working 40 hours per week.
• Part-time Employees: Generally under 30 hours/week; must still receive LA minimum wage and accrue sick leave.
• Overtime Pay: 1.5x regular rate for work exceeding 8 hours per day or 40 hours per week. Double-time pay applies after 12 hours in a day, and for work exceeding 8 hours on a seventh consecutive day.
• Paid Sick Leave: Required by LA ordinance; employees earn 1 hour for every 30 hours worked.

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Proper Employee Classification for Local Business Compliance

Accurate staff classification protects your LA restaurant and ensures fair treatment:

• Hourly Staff: Servers, bartenders, hosts, buspersons, cooks, cashiers—entitled to overtime, sick pay, and vacation accrual if offered.
• Salaried/Exempt Staff: Typically managers who (a) primarily manage/lead and (b) earn at least twice the state minimum wage. Exempt from overtime.
• Contractors: Rarely appropriate for restaurant roles; improper classification risks serious penalties.
• Vacation/Leave Qualification:
  • Sick leave accrual applies to all workers, regardless of status.
  • Vacation pay, if offered, must comply with California payout rules.
  • Maternity/paternity leave is available for qualified employees at businesses with 5+ staff, under the California Family Rights Act.

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Tip Reporting, Tracking & The New Federal No Tax on Tips Law

Tip income is central to most LA restaurants, and recent legislation has changed federal tax treatment:

• No Tax on Tips Act (OBBBA): For 2025–2028, employees can exclude up to $25,000/year of tip income from federal income tax.
  • Single filing: Deduction phases out at $150,000+ MAGI.
  • Joint filing: Deduction phases out at $300,000+ MAGI.
  • Only tips from “customarily tipped” occupations qualify (servers, bartenders, etc.).
• FICA Still Applies: Tips remain subject to Social Security/Medicare payroll taxes.
• Accurate Reporting: Employees report tips monthly; payroll software should capture, track, and report all tips, both cash and credit.
• Effective Period: Applies to tax years 2025 through 2028.

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Payroll Software for Los Angeles Restaurants

Modern payroll solutions streamline compliance, automate calculations, and support time tracking for local businesses:

• Gusto: Great for LA restaurants with tip integration, compliance features, direct deposit, and robust reporting.
• QuickBooks Payroll: Suitable for LA eateries already using QuickBooks; provides automated payroll tax filing, tip tracking, and sick leave management.
• ADP: Enterprise-grade solution for larger local businesses, with automated labor law updates and flexible pay options.
• Paychex: Popular for small to mid-sized Los Angeles restaurants; offers compliance alerts and easy tip allocation.
• Toast Payroll: Designed specifically for restaurants; integrates payroll with POS and tip pool management.
• Homebase: Ideal for time tracking and shift scheduling; syncs with major payroll providers for seamless processing.
• Deputy, When I Work, BambooHR: These tools aid employee scheduling, leave request processing, and vacation/time-off management.

When choosing software, prioritize those with features for Los Angeles payroll compliance, automatic overtime calculations, paid sick leave tracking, tip reporting, and easy integration with your accounting systems.

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Tracking Time, Sick Leave, Vacation & Family Leave

Effective recordkeeping is mandatory for compliance and maximizing operational efficiency:

• Time & Attendance: Use Homebase, Deputy, or POS-integrated solutions to track hours, overtime, shift swaps, and paid breaks.
• Sick & Vacation Leave: Track accruals digitally; provide easy employee access to balances and request systems.
• Maternity/Paternity Leave: Qualify under CFRA if staff worked 1,250+ hours last year and you employ 5+ people.

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Avoiding Payroll Pitfalls

• Misclassifying Employees: Always consult with an LA payroll specialist or CPA for complex roles.
• Failing to Pay Minimum Wage or Overtime: Los Angeles enforces strict penalties; always use compliant calculations.
• Neglecting Tip Reporting: Even cash tips must be recorded and reported.
• Ignoring Law Updates: Regulations change frequently, especially in LA; subscribe to city and restaurant association updates.

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Conclusion: Building Payroll Success for Your Los Angeles Restaurant

Payroll for Los Angeles restaurants is more than just cutting checks—it’s about protecting your business, your team, and your reputation. With local business regulations, the new federal tip law, and advanced software, you can simplify payroll, stay compliant, and attract top talent. When in doubt, partner with local LA payroll specialists or CPAs who understand restaurant payroll inside out.